Debt and Power: An Interview With Michael Hudson

Yves here. Yet another informative talk with Michael Hudson on one of his key topics: why debt that can’t be paid won’t be paid. Here, he gives another riff on how ancient societies dealt with this issue and how modern lenders have gone off the rails.

Originally published at Digital Finance Analytics

Martin: Today Debt and Power. I’m Martin North from Digital Finance Analytics. Welcome to our latest post covering finance and property news with a distinctively Australian flavour.

Today it is my pleasure to introduce Michael Hudson, American Economist, Professor of Economics and author of “Killing the Host” and “and Forgive Them Their Debts”. In the current environment I think those are great titles. Michael welcome.

You have been following the economy and the question of debt for quite some time and I’d like to start the discussion with a simple question: How much debt is too much debt?

Michael: Too much debt is when it’s beyond the ability to be paid. At a certain point every debt grows beyond the ability to be paid because of the magic of compound interest. At 5 percent interest, a debt doubles every 15 years. If you can imagine since the whole debt take-off in 1945, the first 15 years gets you to 1960. Then, the debt doubles again by 1975, and doubles again by 1990, then again by 2005, and then today – 64 times the relatively small debt owed back in 1945, some 75 years ago. And the creation of yet new credit (peoples’ debt to the banks and to wealthy savers) has grown at a similar rate even without new lending taking place, so the debt overhead actually has grown much, much more than that 5% a year. It’s grown more like 15% per year. That is much faster than national income or GDP. This disparity in expansion paths means that more and more income and GDP needs to be paid each year, So, to answer your question, too much debt is when it can’t be paid – that is, can’t be paid without transferring property to creditors, reducing consumer spending and home ownership rates, and plunging the economy into austerity in which only the wealthy financial class is affluent.

What happens when a debt can’t be paid? Well, either you default and lose your property as creditors foreclose on your home or drive you into bankruptcy, or – if you’re a corporation – they drive you under and a corporate raider takes you over. Or else, you write down the debt.

Interest-bearing debt was first invented in the third millennium BC, maybe 2800 2700 in the ancient Near East. The first records are about 2500 BC. Interest rates were about 20%. Rulers were obliged to think about your question: how to maintain economic balance and avoid too much debt. The answer they found was that when each new ruler would take the throne, they would proclaim a Clean Slate. Its terms were basically those of the Judaic Jubilee Year, whose word deror was a cognate to Babylonian andurarum. This Babylonian practice was put in the middle of Mosaic law, in Leviticus 25. It returned land to debtors who had forfeited them to foreclosing creditors, and it freed debtors who had fallen into debt bondage. This periodically avoided too much debt, by regularly wiping out personal debts – mainly agrarian debts denominated in grains. However, business debts were left in place, to be settled among the well-to-do who could afford it.

Western civilization became Western by making a radical break from what went before. Classical Greece and Rome didn’t have any debt cancellations, because they didn’t have any palatial authority to do so. They had chieftains, but they didn’t have an independent palace with authority to overrule the ambitious families that became the oligarchy. So from the time that the Roman oligarchy overthrew the last king in 509 BC down to the time when Julius Caesar was killed in 44 BC, you had five centuries of debt revolts. The plebeians in Rome, like many Greeks, demanded the debts be cancelled.

That demand was what prompted the call for democracy in Greece and in Rome. They needed political democracy with everybody able to vote and serve in the government in order to have a government that could cancel the debts and redistribute the land.

But the oligarchy resisted this policy, seeking to hold onto its creditor claims that kept the population at large in dependency and outright bondage. In the 7thand 6thcenturies BC, most Greek cities were overthrown by leaders called tyrants. They were basically reformers who overthrew the closed local aristocracies, cancelled the debts and redistributed land to the people. Solon abolished debt bondage in Athens in 594 BC (but did not redistribute land) via his “shedding of burdens,” his seisachtheia, referring to the debt burden. A similar radical restructuring occurred in Sparta.

But Greece ultimately was conquered, sacked and looted by Roman generals, first in 147 BC then in 88 BC under Sulla. Rome took over, and its oligarchy was intransigent. They accused popular leaders wanting to cancel the debts of “seeking kingship,” and usually killed them. They killed the Gracchi, they ended up killing Caesar, they killed Catiline when (having failed to become consul) organized an army to fight for debt cancellation.

Finally, the Emperor’s Emperor Hadrian and Marcus Aurelius cancelled debts in AD 118 and 178 respectively. By that time these debts were mainly tax arrears. After that, there were no debt cancellations. That makes Western civilization very different from the Near East. The legacy of Roman law is that you can’t cancel the debts, you can’t write them down. That means that again and again and again, debts are going to grow too big to be paid without forfeiting your land or forfeiting your liberty and falling into debt peonage, losing your means of support and going bankrupt.

That’s what we’re facing today. Is society going to say that all debts have to be paid, without regard for the economic and social consequences? Almost 90 percent of American debts are owed to the richest 10 percent of the population. I’m sure the situation is similar in Australia, and the 10 percent of course includes the London and the New York banks. So the question is whether you are going to let the economy’s wealth, income and property be sucked upward as a massive debt foreclosure? Or, are you going to restore equilibrium by wiping out this enormous overgrowth of debt.

You really should think of these debts as bad loans. A bad debt that can’t be paid means that there’s a bad loan. But modern economic orthodoxy agrees with the Roman oligarchy: All debts have to be paid, even if that destroys society and ends up in feudalism. We’re going along that route because that’s our individualist morality – even anti-social morality at this point. There is a reluctance, a cognitive dissonance, to recognize that debts are too big to be paid without imposing austerity that makes economies look like recent Greece or Argentina.

Martin: It’s a scary thought isn’t it. And is there a difference between public debt and private debt? In other words, does it behave in the same way?

Michael: As I think Steve Keen explained on your show before, the public debtors can’t go bankrupt domestically, because governments can simply print the money to monetize it, or just refuse to pay the debt. Private debt is created by what Steve calls endogenous banking. In other words, banks simply create credit (their customers’ debt) on a computer. A debt IOU is created as the bank’s asset, along with a credit for the borrower. So the balance sheet remains in balance, as assets (of the bank) and debts (of borrowers) reman constant. The word “savings” obscures the fact that creditor loans are simply created out of nothing but electric current to write a new balance sheet. And then, of course, interest has to be paid to the creditors.

Private debt is created for different reasons than public debt. Public banks would not lend for corporate takeover loans. They would not lend to corporate raiders, or for stock buybacks. They would not create junk mortgages way beyond the ability of borrowers to pay. Government debt would be extended presumably for spending for the public purpose – to increase economic growth and increase prosperity. Private debt these days has become largely dysfunctional. Its effect has often been to shift prosperity from 90% of the population to the 10% of the population that controls the banks and the creditors. So private debt has become corrosive and parasitic, while public debt is supposed to be handled well – except to the extent that the oligarchy has taken over the government.

In the United States since 2008, the Federal Reserve has created $4.5 trillion of credit to the stock and bond market and mortgage market to support prices for real estate. The aim has been to make housing more expensive, enabling the banks to collect on their mortgages and not go under. This credit keeps the debt overhead in place, thereby keeping the keep the financial system afloat instead of facing the reality that debt needs to be written down. Because if it is not written down, the “real” economy will be hollowed out. In that sense the financial overgrowth is largely fictitious wealth.

The Fed’s supply of $4.5 trillion isn’t called public debt, because it’s technically a swap, so it doesn’t appear as an increase in the money supply. The increase in the money supply will be what President Trump proclaimed today, March 19: $50 billion dollars to the airlines, and Boeing. Yet Boeing has spent $45 billion in the last ten years on stock buybacks. So Trump said, in effect, that if companies has spent 92 and 95 percent of all of their income just to buy shares and pay out dividends instead of investing it, the government will create money and give it to them all over again, because his priority -is how well the stock market is doing. In other words, how much does the “real” economy have to shrink in order to keep sucking up an exponentially growing volume of interest and stock-price gains to cover all this corporate debt, business debt and personal debt?

Martin: And so the obvious question then is who are Central Banks working for?

Michael: Central banks work for their clients the commercial banks. Until 1913 in the United States the Treasury did almost everything that the Federal Reserve is doing today. It moved money around the country. It had 12 districts. It intervened in markets. It did what a central bank did. But then JP Morgan and the bankers essentially anticipated Margaret Thatcher and Ronald Reagan, and pressed for a privatized central bank run out of Wall Street, Boston and Philadelphia, not Washington. They excluded Washington from the Fed’s board so as not to let the Treasury have a voice on it.

Their logic was that banking should only be regulated by the private sector, because only in that way could they turn the government from a democracy into an oligarchy. So that they created a central bank that acted on behalf of bankers, not the economy as a Treasury is supposed to do. So basically, the development of central banks for the Western countries has been a disaster to the extent that they represent financial interests instead of representing the economy as a whole. Protecting financial interests means sustaining growth in their product, debt overhead, instead of protecting the economy fromfinance and its bad loans that create a burdensome overhead for families and business.


Martin: Right. I suppose that explains why they are focused on financial stability rather than the prosperity of real people.


Michael: “Financial stability” is a deceptive term. It means increasing austerity for the economy you cannot have financial stability and economic stability at the same time. If the growth of debt and finance is exponential and the economy is growing in an S curve, then the economy has to shrink at a deepening rate in order to maintain stable compound-interest growth and even higher stock-market prices.

The relevant mathematics was developed already in Hammurabi’s day by 1800 BC. We have the cuneiform textbooks from which scribal students in Babylonia were taught. They were asked to calculate how fast a debt grows at an annual 20 percent (their normal commercial rate). How long does it take a debt to double at going 20 percent rate of interest? The answer is five years. How long does it take the quadruple? Ten years. How long to multiply 8 times? 15 years. How many 16 times? Well, that’s 20 years. And within a 30-year generation you have a debt multiplying 64 times.

We also have the scribal texts calculating how fast a herd of cattle grows. It grows in an S-curve. So you know that the gap between the rise of debt and the growth of a herd is increasingly wide.

Most of the loans that were not cancelled were in foreign trade, among merchants (and their debts to the palace, which advanced many textiles and other inventories to traders). These commercial debts were denominated in silver, while most domestic debts were denominated in grain. So unless Sumer could keep on trading abroad and making profits, debts were going to be too large to be paid. That’s when rulers would raise the sacred torch, like the Statue of Liberty, signalling a debt cancellation and they’d cancel the debts. If the crops failed they’d cancel the debts because if they didn’t cancel the debts then the small farmers would end up becoming bond-servants to their creditors, who often were tax collectors in the palace bureaucracy. They then would owe their labor to the creditors, and so couldn’t perform corvée labor building palaces, walls and other public building or even serve in the army. So it would have been civic suicide for a community notto cancel such debts.

Mesopotamian and other Near Eastern rulers were not idealistic utopians. They were simply being practical in realizing that debts grow faster than ability to be paid. All of their mathematics shown that. So their models 4000 years ago were more sophisticated than the models that are used today, which just assume that debts will remain a stable proportion of income and output.

Martin: So, I guess we’ve got this pile of debt and it’s growing as the recent central bank interventions are just adding more debt into the system. How do we get out of this mess?

Michael: The only way you can escape and maintain stable economic relations is to write down the debts. That means you have to let many banks and their loans go under. That almost happened in 2008. Sheila Bair, the Federal Deposit Insurance Corporation head, wanted to foreclose on one bank that she wrote was more incompetent and crooked than the others. That was the largest bank: Citibank. The problem is that its sponsors were President Obama, Robert Rubin and basically Wall Street. Rubin was Secretary of the Treasury under Bill Clinton, and had become head of Citibank. His protege Tim Geithner became the bagman for Citibank, and was made Secretary of the Treasury. Geithner blocked the Obama administration and Sheila Bair from taking over Citibank.

Here would have been a wonderful chance. You take over one of the worst bank in the United States – the bank that made the bad bets and so many junk mortgage loans that it was called a serial criminal by former S&L prosecutor Bill Black, now at the University of Missouri at Kansas City. Imagine if Citibank would have been taken into the public domain and made a public bank. It wouldn’t have made more crooked loans. It would have made loans for what people and business actually needed. But Obama invited the bankers to the White House, and promised to protect them from the “mob with pitchforks.” The mob with pitchforks were his own voters, his supporters, the people whom Hillary called deplorables – mainly indebted wage-earners. Obama said that he would protect the banks from loss and not to worry about Congressional reprisals.

Posing as a black civil rights icon, Obama bailed out the banks – his major campaign sponsors and donors – so generously that not only did they not go under, but they are now gigantic as a result of the bailouts and designation as Too Big to Fail (TBTF) driving out the small smaller banks. Obama didn’t write down the mortgages as he had promised voters. I think he was the worst U.S. president in a century, because the economy stood at what couldhave been a turning point with real hope and change. He’d promised to write down the mortgage debts to the realistic value of the buildings instead of the inflated value that Citibank, Bank of America and Wells Fargo and other crooked banks had put on them. Instead he let them go ahead foreclose on 10 million American homes.

That became a great wealth-producing activity as large Wall Street companies like Blackstone came in and bought up homes that were foreclosed on, for pennies on the dollar, and turned them into rental properties. That raised rents on Americans very rapidly. So the rentiersector got rich by squeezing the working-class, leaving them with little to spend on goods and services without going deeper into debt. So Obama’s policy basically imposed what is now more than a decade of austerity on the economy.

Since 2008, the GDP per 95 percent of the American population is actually shrunk. All the growth in America’s GDP has occurred only to the wealthiest 5% of the population. That’s Obamanomics,and it’s the Democratic Party policy – which is the main reason why President Trump was elected. He made a left run around Hillary and the Democratic Party. He’s doing it again today. That’s why most people expect that despite Trump’s mishandling of the virus crisis, he will move to the left of Joe Biden or Hillary or whomever the Democrats decide to run against him.

Martin: You’ve made an interesting connection between the political forces in the economy and the financial forces. Essentially, it’s those two against the people, isn’t it?

Michael: That’s what you call an oligarchy. It has the trappings of democracy because you can vote now for either Joe Biden or Donald Trump. They call that a democracy, but both of them work for Wall street and both of them represent the oligarchy. So it’s what the 19thcentury called a sham democracy.

Martin: Right, and so the appearance of what’s going on and the reality of what’s going on are actually quite different?

Michael: I think the appearance is actually what it is. They’re not getting away with it. The appearance is becoming clear: a corrupt takeover by the oligarchy deliberately impoverishing the rest of the population. You have the right-wing Fox News and Rush Limbaugh saying that the outbreak is a godsend to America. Look at look at how its stabilizing the economy: Number one, it wipes out mainly older people. They get sick the most rapidly. That means we can cut Social Security spending the elderly die off. It will help solve the pension shortfall. That’s looked at as positive. The disease will also end up reducing unemployment, I think of reporters who said that the world’s overpopulated.

But most of all, the crisis gave Trump an excuse to give enormous bailouts to Boeing and the airline companies that already were near insolvency as a result of their own debt problem. They hope to use the crisis not to revive the economy, but to just pound it into debt deflation, leaving the debts in place while bailing out the banks and the landlord class. While people are losing their jobs, especially part-time workers or those who work in retail stores, bars and restaurants. They are laid off and can’t pay their rent. Their employers often are small businesses who also can’t pay their rents. Already there are for rent signs all up and down the big streets here in New York. The threat is that the landlords will not be able to pay the banks, because they won’t have tenants. So there’s a rising wave of arrears for all kinds of debts.

The rate of arrears and missed payments is one way you tell when debts are too large to be paid. They are mounting and are up to 30 or 40 percent for student debts. They’re rising for automobile loans, and many mortgage debts are also in arrears. So basically the virus crisis has become a vehicle to bail out the both the landlord class and keep the banks afloat while sacrificing the wage-earning population.

Martin: So if you run history ahead over the next 3 to 5 years, let’s assume that they actually find a way to get the health issue under control. What you’re saying is at the end of it, most ordinary people will be hollowed out further, and power and authority will be ever more concentrated in the rich elite who own the banking system and also own the political system

Michael: That’s the trend. In the 1830s when Malthus’s successor at the East India Company’s Haileybury college, William Nassau Senior was asked about the million Irishman who were dying in the potato famine, he said, “It is not enough,” meaning that it wasn’t enough to balance the economy as it was then set up. His idea of equilibrium needed many more people to die. Even without having a Social Security “problem.”

When there’s poverty, suicide rates go up, and emigration accelerates. You can look at Greece in the last five years to see what happens when an economy becomes debt strapped. Lifespans shorten, people get sick, suicides rates rise. Greeks emigrate abroad. But Americans can’t emigrate, because they don’t speak a foreign language, and English-speaking countries have gone neoliberal.

It looks pretty bad, and there’s no economic doctrine that deals clearly enough with what’s happening to explain that if you have to pay this exponential growth in debt, you’re going to have less and less to buy goods and services. More and more stores are going to close and labor will be laid off. Nobody can afford to go to work. That’s what happens in a depression, and that is the game plan that’s called “financial stability,” as if it is the price that you have to pay to keep the bad-debt-based financial sector afloat.

Martin: Does that mean that unless we can find a completely different formula around democracy – and I assume that means focusing much more on public infrastructure public investments and all of those things – there’s no alternative? Who’s talking about that?

Michael: A few people you have had on your show seem to be talking about it. But we’re a small group of maybe 15 people who have a common discussion with each other.

Martin: So it is still a minority sport. Yet it seems to me to be probably the most critical debate we should be having, because we have the bulk of the population effectively being crushed by the way that the system is currently working. Yet everyone is told to look over there and watch Netflix rather than think about these more fundamental issues.

Michael: One of the problems is that since the late 1970s the University of Chicago and neoliberals have taken over the editorship of almost all the leading academic journals in this country, England and elsewhere. They’re run by doctrinaire advocates of privatization and deregulation to broadcast an oligarchic patter talk. I was teaching at the University of Missouri at Kansas City, the center of Modern Monetary Theory, but our graduates had difficulty getting hired at prestigious on universities, because in order to get hired by a prestigious university you have to publish in one of the journals run by the Chicago Consensus.

The key of free-market economics is that you can’t impose a free market unless you can exclude everybody who disagrees with you and shows how a free market will polarize the economy and lead to austerity. To impose a free market in Chile, for instance, they gave General Pinochet’s police permission to kill labor leaders, advocates of land reform, and to close every economics department in Chile except for the Catholic University that taught the Friedmanite Chicago dogma. So libertarianism is totalitarian. Libertarianism means a small government, and if government is small, then who’s going to do the planning? Every economy is planned, and if governments don’t do the regulating and planning, there’s only one alternative: Wall Street does the planning, or the City of London, including the planning for Australia, from what I understand.

Martin: Right. The consequence there is that freedom – which everybody sort of exposes as being the character of modern society – is probably less strong than many people think.

Michael: The Romans described Liberty as the ability to do whatever you want. They said that this meant that only the wealthy people could have Liberty to do whatever they want, including to  foreclose and deprive debtors and other people of theirLiberty.

Martin: Michael I found this a fascinating and interesting conversation and so critical

for people to understand. I really thank you for your time today. The good news is that there are many more articles interviews on your website, whom I understand is curated in Australia by a webmaster here, so that’s an interesting connection.




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  1. notabanktoadie

    Public banks would not lend for corporate takeover loans. They would not lend to corporate raiders, or for stock buybacks. They would not create junk mortgages way beyond the ability of borrowers to pay. Government debt would be extended presumably for spending for the public purpose – to increase economic growth and increase prosperity. Michael Hudson

    Public banks DO NOT solve the ethical problem of the use of the PUBLIC’S credit but for PRIVATE gain.

    Sure, let’s have generous deficit spending for the general welfare (and beyond that an equal Citizen’s Dividend to replace all other fiat creation) but let’s not enable Peter to rob Paul because he is more so-called “worthy” of the public’s credit than Paul.

    And suppose Peter want’s to eliminate 90% of his workers with automation financed with the public’s credit? Shall the public be dis-employed with the public’s own credit? Or shall Ludditism be the order of the day?

    The ethical solution is 100% private banks with 100% voluntary depositors with all fiat creation to be for the general welfare only and not to allow Peter to rob Paul.

    1. Susan the other

      Not sure what “Public Banks” you are referring to. I’m pretty sure they don’t exist in this country. The few state banks we have can bank for the benefit of the public in that state but only up to a certain point. They all have to toe the line in this “free financial market.” What we have right now is a private banking system that is in a panic to control the damage to themselves. But they can’t because (you’re correct) they depend on the government to finance them. Watch Mitch today, he’ll get the job done.

      1. notabanktoadie

        I’m referring to the public banks that Dr. Hudson and others believe should replace or supplement our current government-privileged usury cartel.

        And my point is that they, just like our current system, would enable Peter to steal from Paul via what would be even more so than now, the PUBLIC’S credit but for private gain.

        And why in heck would a monetary sovereign need to lend its fiat anyway? Does it need the interest? Or even the principal back?

        1. Adam Eran

          Why would a public entity that issues fiat currency need to lend? Perhaps to finance things (like infrastructure or education) that don’t provide the required rate of profit private banks need.

          We have had a long history of public banking in the U.S. North Dakota’s state bank just had its 100 year anniversary. Federally, FDR used Hoover’s “Reclamation Finance Corporation” (RFC) to finance lots of projects at rock bottom interest rates, and recycle the loan proceeds into the public realm. The RFC financed the Tennessee Valley Authority and the first San Francisco Bay Bridge, among other projects. (Eisenhower terminated it).

          Who financed the Bay Bridge earthquake rebuild? Our favorite vampire squid! Goldman Sachs…. and California has a public infrastructure bank… Unfortunately it’s underwriting is completely hamstrung. So private profit rules us now!

      2. ex-PFC Chuck

        There is one state-owned bank in the USA. It’s the Bank of North Dakota. I don’t know much about it but as I live in the adjacent state of Minnesota and haven’t heard much news about it, I assume it’s largely an instance of no news being good news. Considering ND is a part of the Federal Reserve district headquartered in Minneapolis, I assume that we’d hear about it if there was a lot of bad stuff going on there.

    2. Adam Eran

      There are crooked public banks just as there are crooked private ones. The difference is that we have to wait for Silverado Savings & Loan to declare bankruptcy before their corruption is exposed, while a public bank is on the public record. Not fool-proof, but better than privatizing all banks. No pass for that suggestion.

      As for “voluntary depositors”…WTF?! Who are the “involuntary depositors”? Do they come from a new definition of “bank robbers,” perhaps more appropriately “bankers who are robbers”?

      As for the “crowding out” hypothesis you propose, it’s the apotheosis of orthodox economics. Orthodox economists will tell you that government borrowing / spending “crowds out” private sector finance / consumption.

      …and it would too, if everyone were fully employed, and the factories were at capacity. But they’re not, and obviously not, so the hypothesis fails.

      So…sorry, false premises, and Rand Paul on steroids is what your suggestions look like to me.

  2. Edr

    Bankruptcy protection allows the debtors out of the debt burden, which is some relief, however:

    The student loan creditor n medical bill creditors get nothing to keep.

    The credits for housing and land and cars, keep all the housing, land, and cars, becoming owners of everything, able to charge any prices. So, the only solution is that the lender has to keep the risk of the loan, so they don’t continue making greater n more unpayable loans, increasing the cost of housing, medical, etc…

  3. Colcrys

    A debt jubilee seems to me to be designed to provide basically no benefit to people in the true lower class (people at the bottom of society who rent, take public transportation, live paycheck to paycheck, can’t get access to credit, can’t afford a down payment on a house, etc) while representing a massive giveaway to the upper middle class (who own a nice car on a financing deal, have a suburban house with a mortgage, have debt from medical school / law school / business school but also have one of the few remaining high paying jobs).

    Essentially, if you are truly at the bottom of society you are likely to have little absolute debt (your debt might be high relative to your income but the absolute amount of debt you have is low). A poor McDonald’s worker with bad credit isn’t going to be able to buy a 500 k home, a 50 k car, and run up 75 k on their credit card because one characteristic of the lower class is not having access to credit.

    So in a hypothetical debt jubilee:

    Person 1: Works as a surgeon making $325,000 per year, has $175,000 in medical school debt, a $600,000 home with a mortgage, and drives a Tesla financed for $60,000. Debt jubilee. This person is now doing amazingly well. They outright own a great house, great car, and are debt free with an after tax income of $15,000 per month.

    Person 2: Middle class, makes $45,000 per year, has $25,000 in student loans, a $200,000 home, and a used car with $6,000 left to pay off. Debt jubilee. This person is now much better off. If your house and car are paid off (meaning your biggest living expenses are gone), $45,000 per year is a lot of money (this is close to my own income and without paying for housing/transportation I’d be living really well).

    Person 3: Middle class, makes $45,000 per year, has $10,000 in student loans after community college plus state college, rents an apartment for $1,250 per month, has a used car that is already paid off. Debt jubilee. This person’s life is improved somewhat by ditching their student loans but not nearly to the extent as Person 2 since Person 3 still has to pay rent going forward (this is basically exactly my situation except I have my loans down to about $5,000).

    Person 4: Poor, finished high school but no further, rents a tiny apartment that isn’t kept up to code, makes $12 per hour with no benefits at a fast food restaurant, takes public transportation, has $3,000 in credit card debt (remember that if you are truly poor your ability to obtain credit is limited and you can’t afford a down payment on a house). Debt jubilee. This person ditched their credit card debt but their situation hasn’t really improved (they still have a low paying job and their expenses haven’t declined since they are still renting and using public transportation).

    The only way a debt jubilee makes sense to me is if we also do a “material possessions” jubilee / redistribution as part of the debt jubilee. Why should someone with a big mortgage and expensive car bought with a loan get these things for free (and see their lifestyle massively and permanently improved) while a renter who drives an old car they bought on craigslist sees their situation stagnate or get worse? (worse because who will ever lend money to the renter to buy a home after a debt jubilee and who will sell a home to them now that all current mortgages have been erased)

    If we forgive all debts, we need to redistribute the material possessions underlying those debts so that we don’t create a permanent underclass of renters and a permanent overclass of landed gentry.

    Something like universal basic income makes far more sense to me than a debt jubilee. Universal basic income helps all members of society, not just upper middle class homeowners.

    1. Norm

      There are no perfect, fair-to-everyone, solutions. But debt forgiveness could be calibrated. For example, if you cut off the benefits to each house at $100,000, a lot of people would get needed relief, without over-rewarding too many profligate oligarchs and oligarch-wanna-bes. I would also exempt any medical debts from such limits, although it’d be nice if there were reasonable steps taken to limit windfalls for medical/drug industry. But the most important question about debt relief is how do the lenders get treated. Do they get their well-deserved hair cuts (or guillotining if you’re more blood thirsty) or does Washington make them all whole. If they’re made whole, then the whole shooting match will start all over again. If they’re made to pay for their crimes, then, who knows?, there might be some prospect of establishing a sane economy.

      1. KiWeTO

        How about limiting the jubilee to unsecured personal debt?

        Since asset based lending creates debts based on assets, then, the pain of default is mitigated by the lender acquiring said asset. A private contract between lender and lendee.

        Since unsecured credit is primarily predatory lending at unsustainable interest rates, targets those least able to negotiate a loan, and is essentially secured upon the “future labour (earnings)” of the debtor, which is essentially debt peonage, would canceling all unsecured debt across the world relieve the difference between wall street and main street?

        How would unsecured debt lending look like if there were periodic jubilees? After all, if there was no lender, there would be no debtor.

        Unsecured debts do “disappear” at bankruptcy discharge (depending of jurisdiction) or death anyway. This just enables the ex-debtor to be more economically productive than continuing in debt peonage. Heck, said ex-debtor might even be able save for buying a house!

  4. a different chris

    >The answer they found was that when each new ruler would take the throne, they would proclaim a Clean Slate

    Ah! That’s it!

    The problem I keep having with say a “50 year Debt Jubilee” is that if this is going to happen every 50 years, then people are going to behave differently in year 1 than they are in year 59.

    Now I don’t want a ruler, though. Hmmmm — hey, how about a lottery where we select a baby and the spacing between Debt Jubilees are determined by that lucky dude/dudette.

    Of course they will be living a life protected by the rich and threatened by the bankrupt but hey would certainly be exciting.

  5. chuck roast

    Hudson says that we here in the US have a “sham democracy.” It is a democracy supports the interests of those that operate it – the oligarchs. OK. I get it completely. But words matter. “Sham” describes something that is a fraud or something that is not what it pretends to be. Can we find a better descriptor for what our political system actually is? Sham describes something that “isn’t.” Well. What is it?

    Had Hudson described the political system in the US as a “bourgeois democracy” he would have been much more accurate. It is a liberal democracy whereby the propertied classes operate the levers of power to enhance their own interests. However, if he used this phraseology he would have strayed into an ideological, word salad quagmire. Nothing else he said in the interview would have mattered. Hudson would be slagged for being out of touch, antediluvian Marxist from deplorableville. But words matter. Accuracy matters.

    I don’t wish to put words on Hudson’s mouth. Nevertheless, discussions in our “sham democracy” would be advanced if we could accurately describe a Ptolemaic phenomena in a Copernican way without being stoned outside the cathedral.

  6. Tomonthebeach

    After reading Dean Baker’s Rigged long ago, it became crystal clear that people indenture themselves out of avarice and ignorance. Nobody teaches household financial management in high school. If they did, teens would learn how the system is rigged, and try to navigate around it. Ordinary people might be more likely to invest their income rather than spend it – and money they have not yet even earned. Those of us who subscribe to NakCap did understand the economy is rigged and acted accordingly.

    Avarice is part of human nature, but it is culturally encouraged by relentless advertising that rationalizes accepting debt that is not in our best interests. Ignorance enables financiers and rentiers to milk people dry because they cannot fathom compound interest. That Chevy dealer tells us, the car will only cost $385/month. Most buyers cannot even grasp that well before the debt is paid off, they will need to replace the car and roll over the residual debt while all the time paying interest on the old and the new car. Now that is compounding! It is also what gets society to a Michael Hudson debt-forgiveness moment where financiers either have to take a small hit or watch the entire system fail – or bring back the guillotine.

  7. Susan the other

    Thank you Yves and Prof. Hudson. Truth is like medicine. Interesting factoid here that interest on debt was first noticed c. 3000 bc. So now I’m going to allow myself to think that that was the year that money jumped the shark. This has been our mindset about money, and the value of money, for 5000 years. We are now so brainwashed that we think we have a congress of representatives acting on our behalf when they establish the mandate for the Fed. Today we have no representation at all – congress limits the Fed for the benefit of private banks. Isn’t that flat-out usurpation? Rhetorical question. When it comes to accumulating a chest of gold it has to be true that a bad debt is a bad loan – just like a bad investment is a nothing burger. That was before they invented “interest”. But now, when it comes to money, interest value is granted value no matter what. It’s a mental defect. We might as well bestow value on rabies.

  8. teacup

    Besides the Covid-19 crisis, what is the main expenditure everyone has to worry about every month to survive? Housing. Ceterus paribus – all else being equal – if a UBI were implemented now and forever, where would most of the extra money go? It would largely go into housing/rental/cost of the land market. Hudson has pointed out that 80% of Bank income comes from mortgage interest. Humans didn’t make land, why should private individuals gain at the expense of the community who creates the land value in the first place?
    From the late Lyndie Davies –

    Variant kinds of land resources, hitherto neglected or not classed, or only recently classed with land, show great tax equalizing potential. Some examples are the broadband spectrum; intellectual property; telecom relay sites; slots in the geosynchronous orbit; fishing quotas; quotas of all sorts on production and marketing; pollution permits; licenses to withdraw water; power drops; parking spaces; highway access; mooring spaces; etc. Complimenting these are Pigovian taxes to curtail overuse and pollution of common airs and waters.

    Of course a debt jubilee will help, yet the underlying systemic cause is economic rent seeking; Even J.M. Keynes called for the ‘euthanasia of the rentier.’

  9. HotFlash

    Now, I am not an economist, nor am I an Akkadian scholar. But my BFF is, and she and I had many fascinating discussions back when she was translating Old Babylonian, Sumerian, etc. contracts and legal cases, me being an accountant. One thing that Prof Hudson does not stress, and to Colchrys’ point, is that ancient near eastern societies were largely cashless. Debt, as he points out, were mainly owed in grain, mostly to the temple =~ the government. Eg, in Shsulgi’s reign, the two chief temple administrators were Shulgi-simti and Gemmae-ninlila, two of Shulgi’s wives. Fun fact: sheep were owned individually but grazed on a common pasture, temple clerks kept track with little model sheep which were put into and taken out of bowls with the owner’s names on them. We are pretty sure that the Arabic invention 0 is a depiction of an empty bowl, although the Dept head didn’t think so. But I digress…

    Our cash-oriented, hand-to-mouth wage-earner society does not function in the same way *at all*. Even a century or so ago, franklins (free-hold farmers) like my maternal grandfather took out a loan for their seeds and paid it back when the crop came in, share-croppers and tenant farmers paid their rents at harvest time, shoemakers like my paternal grandfather made shoes on credit for the local farmers until the harvest was in. Dickens novels swim in a cashless society, with debts to the landlady, bootmaker, tailor and butcher settled once a year, or quarterly. Salaries were often paid quarterly, thus Princess Alicia of Dickens’ short story “The Magic Fishbone” wishes that it were quarter-day. Except for land, debts stretching over more than a couple of years were unusual. Young people now wouldn’t remember, but “Cash-and-carry” grocery stores, lumber yards (eg “Cashway”) and the like were post-war (and post-car) innovations. My grandmother ordered from the grocer either in person or later by phone (!), the charge went on the family tab and the grocer’s delivery boy brought her order that day or the next. Paid when the harvest came in. So a debt jubilee even 100, 150 years ago would have had much more effect then than now.

    What we really need for our times is a Guaranteed Paycheque, and in these times when working is not just precarious but dangerous for every in society, not just a basic one.

    * When Bernie says “paycheque-to-paycheque”, my self-employed and gig-worker friends sigh, “Wouldn’t *that* be nice!”

    1. Adam Eran

      Maybe. The truth is that credit predates coins by millenia (see David Graeber’s Debt: The First 5,000 years … Graeber cites Hudson). Credit predates writing (3500BC) and coins come much later (800-600BC).

      So score-keeping is not exactly cash, but it can be just as exacting. All those bar tabs and pay stubs on Mesopotamian clay tablets were scorekeeping obligations just as much as coins or bills would do. All the problems, including the need for Jubilees and bankruptcy, arose long before coins were available.

      One important aspect of the accurate historical account: All money/credit and markets in our economic sense requires a state to administer the score-keeping, contracts, etc. There are no stateless societies with economic markets, despite the fairy tale that money economies evolved from barter. No such thing. (Note how the fairy tale discredits the state, though, portraying it as a meddler in the “free exchange” of goods and services between Robinson Crusoe and Friday…appropriately fictional characters.)

      Share-cropping required purchasing goods on credit. The “Furnishing Man” — later shortened to “the Man” — sold the goods at two different prices: credit or cash. The credit price would make a payday lenders blush. The crop lien required by the Man before he would extend credit subjected lots of farmers to debt peonage, just as Hudson says. It was payable whether the market for the crop collapsed, or the weather prevented harvest. This arrangement was the origin of the Farmers’ Alliance, the Peoples’ Party, and William Jennings Bryan’s campaign to expand the money supply to include silver. I’d suggest Bernie is a modern, more honest, version of Bryan.

      So…Just because some token (coin, bill) is unavailable or scarce does not mean the problem of interest compounding faster than the real economy can pay the loan goes away. It doesn’t. Jubilees would be more effective now than 100 years ago because the level of private debt is higher now.

      And yes, even pre-Depression real estate loans were seldom for more than five years (and seldom amortized), so previous lending practices worsened debtors’ circumstances back then. The 30-year mortgage (dead, “mort”) that pays itself off is a modern, New Deal invention that empowered people to actually own homes. (Note: In the U.S. the forecloser only gets the property, not the borrower’s other assets…but not in Spain.)

      As for whether a debt jubilee would have an effect in modern times, take a look at Steve Keen’s graph of private debt to GDP ratios… You’ll see peaks in 1929 and 2007. The later peak is higher (!)…

      Keen says since most debts are not owed the state, a credit or payout that would apply first to paying off debt could make the Jubilee happen in modern times. He’s suggesting $50,000…and admonishes us to remember that the devil would certainly be in the details of such a proposal.

      If you don’t think that would lead to an economic revival, I’d suggest you remember tokens don’t make indebtedness. And yes, that cash shortage, particularly in the post-Civil War South, was arranged thanks to Northern Bankers.


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